With great fanfare, President Bush announced at his party's convention that in his second term he would usher in the "ownership society." More aptly, it should be referred to as the "you're on your own society."
Bush's plan is to provide tax incentives for saving money in specialized accounts that would give Americans "ownership" of their health care and retirement, rather than rely on the government to provide those benefits. But the catchy phrasing shouldn't mask the intent, which is to further starve the federal Treasury of resources and provide more tax shelters to America's "haves and have mores," as Bush famously called his fellow fat cats. If implemented, over time, Bush's ideas would reduce government tax rolls, cut gaping holes in the social safety net and transfer tax obligations from the wealthy to those in the middle. "Ownership" would be primarily available to those who already own plenty.
Bush's response to the problem of 45-million uninsured Americans is chiefly to give tax credits to low-income folks - but not enough to actually afford health insurance - and for the rest of us, health savings accounts. The accounts would allow pretax contributions that could be invested, with any growth accruing tax-free. The accounts could be used to pay the deductible on high-deductible health insurance policies, and Bush wants to make the cost of these high-deductible policies tax-deductible as well.
In general, using the tax code to encourage behavior will disproportionately reward people in the highest tax brackets. It's pretty obvious that someone in the 35 percent bracket is going to benefit about twice as much from a tax savings program as someone in the 15 percent bracket. But those in the higher brackets are also more likely to have the discretionary income needed to participate in the first place. Families who truly need the help, those who can't afford $4,000 or more worth of health insurance but are considered too well off for low-income programs, will get very little benefit.
Take a typical family in the 15 percent bracket. If that family makes a $3,350 annual contribution to a health savings account, it will reap only $503 in tax savings - not much help if you can't afford the $3,000 to begin with (and then the family still has to buy health insurance). Jonathan Gruber, professor of economics at the Massachusetts Institute of Technology, says the program will increase number of uninsured by 350,000. His recent analysis concluded that some employers will respond to this new tax benefit by reducing or eliminating coverage.
Then there's the hit to the federal Treasury, which is estimated to be more than $40-billion over 10 years. Vice President Dick Cheney may find good news in the fact that the federal deficit is only a record-breaking $422-billion, but this irresponsible balance sheet will cripple our nation's future. Bush's health savings accounts will add to these woes while adding to the number of uninsured.
To encourage additional savings, Bush is proposing a new lifetime savings account. Contributions to these accounts would be made with aftertax money but all accumulated returns could be withdrawn tax-free. As proposed, the lifetime savings account would allow any individual regardless of age or income to shelter an annual contribution of $7,500 that could be withdrawn for any reason.
That means a family of four could sock away $30,000 every year and not pay a penny of taxes on the wealth that grows. While the average wage earner would be giving the government part of every dollar made, those who simply watch their capital expand would have little to do with the tax man.
It follows nicely with Bush's plan to make permanent his massive tax cuts, the benefits of which flow so substantially to investors over workers that already the national tax burden has shifted by 2 percentage points from capital to labor.
If Bush truly wanted to encourage struggling middle-class families to save more using tax incentives, he would have capped these shelters at a family income of something like $75,000 and he would not have made it possible for babies and children to save thousands a year. Make no mistake, this is a plan to help the rich avoid more taxes.
Middle- and low-income earners do not take full advantage of tax incentive savings programs that already exist. According to Alicia Munnell, director of the Center for Retirement Research at Boston College, as of 2001, more than a quarter of workers with an opportunity to join a 401(k) failed to do so, with the reason often being that they couldn't spare the money. And fewer than 10 percent of workers contribute the maximum $13,000 annually. Those who do are largely the upper-income folks.
Bush said that ownership "brings security and dignity and independence." But Bush's plan won't deliver any of those niceties for the people who really need health insurance and a secure retirement. Instead, it will deliver more manna to the rich and a bankrupt Treasury for the rest of us who will find a government unable to deliver the Medicare and Social Security promises we are all depending on.
